How the CFPB Could Impact the Future of Reverse Mortgages

While there has been much news and debate over the fledgling Consumer Financial Protection Bureau, its leadership, authority, and pushback from House Republicans to stifle the agency, there is still lingering uncertainty about how much of an impact the CFPB will have on the reverse mortgage industry once it goes live on July 21. While there are still some unknowns, one thing is for certain: it promises to be an extremely powerful organization.

Regardless of its leadership structure, it will have the ability to oversee lending practices—and has already begun to do so.

“They have a very, very broad authority—kind of a superpower” says Steven Kaplan, parter with K&L Gates, LLP. “Nobody knows how they will use it.”

Additionally, under the Dodd-Frank Act, the bureau must conduct a study on the reverse mortgage industry within a year of its launch. The CFBP has been tight lipped as to the status of the study, but it is required to be completed no later than July 21, 2012.

“This new regulator has authority over financial services generally, and a specific office that is charged with overseeing consumer protection for the elderly,” Peter Bell, President of the National Reverse Mortgage Lenders Association, told RMD in an email. “Furthermore, the enabling legislation that created the agency explicitly requires it to evaluate current practices and consumer safeguards for reverse mortgages and report on that within a year. Obviously, the results of that study and any new recommendations it might lead to are of interest to reverse mortgage lenders.”

A recent NRMLA conference presentation in Washington D.C. this month addressed several specific points on which the CFPB could have implications for the industry. Based on past comments from White House Special Adviser Elizabeth Warren, who is in the process of setting up the CFPB with a team of staff, NRMLA indicated that the industry might expect a strong push for simplification of processes based largely on research and consumer outreach, as well as leveling the playing field to protect small businesses, including banks.

According to the NRMLA presentation, the industry might expect that power to entail substantial consumer research that drives down initiatives. Through its website, the CFPB has already begun to communicate with consumers and those in the industry by soliciting feedback and reaching out to consumers through social media channels and its blog. This week, in a push to cut down documents, the agency published two prototypes of new disclosure forms combining Truth in Lending and Good Faith Estimate forms.

The industry has reacted positively to the new forms, Bell says, but future change remains to be seen pending the mandated study of the industry.

“We’ve never seen a regulator in the mortgage industry with the authority that this burea has,” says Kaplan. However, he adds, “They still have to go through same administrative procedures that everyone else does and folks will have a chance to comment.” The consumer testing, he says, is a good thing that is coming out of the bureau, so far.

Bell notes the transfer of authority as little different from the existing agencies’ current authority. “The difference will be largely in terms of focus,” he says. “The existing agencies monitor lenders for safety and soundness, as well as consumer protection. With the new bureau, these functions will be separated. The exisiting bank regulators will contrinue to focus on safety and soundness. The new bureau will focus solely on consumer protection issues, enabling a more concentrated focus and greater uniformity in treatment of lenders no matter what type of charter a lender is organized under.”

Written by Elizabeth Ecker

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